Report predicts return of M&A activity

2009 U.S. industry activity down 49% according to PwC

NEW YORK -- The number of U.S. media and entertainment mergers and acquisitions fell dramatically in 2009 along with the overall dollar value of deals, but 2010 could see a bounce as the economy and overall M&A market recover, according to PricewaterhouseCoopers.

"Though economic and financing challenges still exist positive pipeline metrics could signal a rebound of entertainment and media deal activity in 2010," Thomas Rooney, leader of PwC's Entertainment & Media Transaction Services practice, said in an introduction to his firm's fifth annual industry M&A Insights report.

PwC pointed to "landscape-changing transactions" in the second half of last year, such as Disney's $4.2 billion acquisition of Marvel -- the biggest traditional industry transaction of the year -- and the announcement of Comcast's play for NBC Universal, as signs of an improving deal market.

As of Dec. 31, pending industry deal volume stood at $32.8 billion (thanks particularly to the Comcast-NBC Uni transaction), well up from the $6.7 billion as of Dec. 31, 2008.

Some have predicted that if the Comcast deal goes through, others could follow with additional combinations of content and distribution assets.

However, PwC predicts that for now, media and entertainment companies will continue to focus on acquiring businesses in core areas as seen in the current sales processes of MGM and Miramax. Deals in core areas allow companies to boost their market share and profitability, PwC noted.

"The focus will continue until the industry's tolerance for risk rebounds and attention shifts toward growth and investments in new media," the firm said.

After a near-record 2008, last year's disclosed value of completed industry deals fell 49% to $77.4 billion, according to latest data from ThomsonReuters presented by PwC's Entertainment & Media Transaction Services practice. That marked the lowest level since 2004.

PwC tracks industry deals in such sectors as film, broadcasting, cable, video games, music, publishing, casinos, recreation & leisure and Internet software and services.

A total of 192 industry deals with disclosed value and 714 total deals were completed in 2009, compared with 283 and 1,000, respectively, in 2008. That represents declines of 32% and 29%, respectively. PwC said total deal volume fell to the lowest level since 2003.

Only seven deals greater than $1 billion were completed last year, down from 20 in 2008 and 16 in 2007.

Most deals in 2009 were spinoffs or split-offs, such as Time Warner's $35.6 billion spin of TW Cable and $2.7 billion separation of AOL, as sector companies continued to prune their asset portfolios and focus on core activities. The TW spins and Liberty Media's $15.2 billion split-off of DirecTV and other assets accounted for 69% of total E&M deal value in 2009, according to PwC.

Such deals also left cable as the largest deal category in 2009 with a disclosed value of $51.1 billion, compared with $28.2 billion in 2008. Broadcasting shriveled from the biggest category in 2008 (with $36.1 billion) to one of the smallest ($400 million in 2009).

Private equity firms, which in recent years had become dominant, had a tougher time doing media and entertainment deals last year. Corporate buyers with strong balance sheets reclaimed center stage, accounting for 91%, or $70.6 billion, in industry deal value.

In a sign that media and entertainment M&A was less of a force last year, deals in the space accounted for only 12.3% of total U.S. deal value in 2009, down from 16.3% in 2008, according to PwC.